Chipmakers Hint at Ease of Chip Supply Glut but Demand Recovery Still Slow

From Intel to Samsung, international chipmakers are celebrating the start of the tip of a semiconductor provide glut, however the outlook for demand from prospects exterior the artificial intelligence (AI) trade stays gloomy.

All the main markets for chips — smartphones, PCs and information centres — have shrunk this yr, as each company prospects and customers reduce spending amid a weak international economic system, excessive inflation and rising rates of interest.

This has created an unprecedented oversupply of commodity chips, inflicting a file mixed KRW 15.2 trillion (almost Rs. 98,650 crore) first-half working loss for the world’s two largest reminiscence chipmakers, Samsung and SK Hynix. 

This glut, nonetheless, has began to ease largely as a result of manufacturing cuts and as a decline in PC shipments eased to 11 % within the June quarter in comparison with a 30 % hunch in every of the earlier two quarters, information from tech analysts Canalys confirmed.

The smartphone market can be bettering, with cellphone shipments falling 8 % within the June quarter, versus 14 % within the first quarter, in response to analysis agency Counterpoint.

“Demand is recovering very regularly,” Woohyun Kim, chief monetary officer at SK Hynix, mentioned on an earnings name this week.

“The current enchancment in PC shipments has been primarily led by promotions and low-end fashions, which means it offered restricted influence on chip demand restoration,” he mentioned, including that cargo forecasts for PCs and smartphones this yr have been downgraded from earlier predictions.

Whereas demand for chips to help generative AI has quickly elevated since OpenAI‘s ChatGPT was launched late final yr, the sector nonetheless accounts for a small fraction of general chip demand and is crimping company spending on servers, as some firms prioritize funding in AI.

Intel CEO Pat Gelsinger mentioned on Thursday a listing glut in server central processing models (CPUs) will persist till the second half of the yr and that information centre chip gross sales will decline modestly within the third quarter earlier than recovering within the fourth quarter. Intel shares rose 6.4 % Friday after stronger than anticipated outcomes.

A sluggish restoration in China, the world’s largest chip purchaser, can be dampening the general outlook.

Each Samsung and SK Hynix mentioned China’s reopening didn’t stay as much as expectations that it might revive the smartphone market, and that they have been extending manufacturing cuts of NAND reminiscence chips, broadly utilized in smartphones to retailer digital information.

Analog chipmaker Texas Devices, which has heavy publicity to China, forecast third-quarter income and revenue beneath Wall Road targets on Tuesday, slowed down by a sluggish restoration in end-market demand that has pressured purchasers to cancel orders. Shares have been up 1.5 % Friday.

“China was roughly half of gross sales on the finish of fiscal 2022, so China has the biggest influence on TI’s enterprise,” mentioned Logan Purk, analyst at funding agency Edward Jones. 

AI winners

Producers of the tools used to make chips resembling KLA Corp and Lam Analysis are early winners of the AI increase. Each firms forecast quarterly income above Wall Road estimates this week. Shares have been up 4.9 % and a pair of.2 %, respectively, on Friday.

“Superior AI servers have considerably larger modern logic, reminiscence and storage content material versus conventional servers, and each incremental 1 % penetration of AI servers and information centres is predicted to drive $1 billion (almost Rs. 8,200 crore) to $1.5 billion (almost Rs. 12, 330 crore) of further (chip tools) funding,” Lam CEO Tim Archer mentioned on a convention name with analysts.

Chipmakers are additionally growing manufacturing of the high-end chips used to help AI associated chips.

SK Hynix mentioned demand for AI server reminiscence had greater than doubled within the second quarter in comparison with the primary quarter. Its DRAM chips, which maintain data from purposes whereas the system is in use, bought for a better worth within the second quarter versus the primary, on common.

The corporate leads the market in excessive bandwidth reminiscence (HBM) DRAM utilized in generative AI. It had a 50 % market share in HBM as of 2022, adopted by Samsung’s 40 % and Micron’s 10 %, in response to TrendForce.

© Thomson Reuters 2023